How buyers and sellers can both benefit from using a 2-1 buydown.
Recently, interest rates have increased significantly. As a result, demand has fallen, and it’s becoming harder to sell your home. Fortunately, there’s a unique financing strategy that home sellers can use to get top dollar for their properties, and it’s called “2-1 buydown.”
Here’s how it works: Let’s say the interest rate today is 7%. By paying upfront for a 2-1 buydown, you can lower the interest rate for the first year of the loan by 2%. In the second year of the loan, the interest rate will be 1% lower, down to 6%. After that, the rate increases to the full 7%.
This is a fantastic way to lower your buyer’s monthly payment at the start of their loan and help them ease into their mortgage. One of the reasons this method is becoming so popular is that it commonly leads to win-win situations. Buyers get a much lower interest rate upfront, and sellers don’t have to lower the prices of their homes.
"By the time their buydown is over, the buyer can refinance."
Since interest rates are so much higher and demand has fallen, buyers have a lot more negotiating power. They see that many sellers are reducing the prices of their homes, and they may ask you to lower yours. However, a 2% decrease in your asking price will have a minimal impact on the buyer’s monthly payment. On the other hand, a 2% rate decrease for the first year will greatly reduce their monthly cost.
Another great perk of this strategy is that it leaves room for interest rates to come back down. Rates have increased recently, but it is unlikely that they will stay this high for long. By the time your buyer’s 2-1 buydown is over, rates may have fallen, and they can refinance to permanently lower their monthly payment.
If you have questions about how this strategy can help you secure a fantastic deal in this market, please call or email me. I am always willing to help!
